Yen Rallies Most in 3 Years as BOJ Refrains From Added Stimulus

The yen rose the most in three years against the dollar as the Bank of Japan refrained from adding more stimulus measures that tend to weaken a currency.

Japan’s currency snapped a two-day decline as BOJ Governor Haruhiko Kuroda held back from extending the maturity of loans to banks as part of its monetary stimulus that pushed the yen down almost 10 percent this year. The currency extended gains versus the dollar as Treasuries rallied even after demand slumped at a Treasury auction of three-year notes. Australia’s dollar dropped to an almost three-year low after data showed home-loan approvals expanded by less than economists forecast.

“Markets hoped we’d see a little more supportive rhetoric in terms of the policy backdrop from Kuroda,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, by phone from London. “Whilst he gave us some warm words, he didn’t really provide us any impetus to maintaining a weaker yen bias.”

The yen strengthened 2.8 percent to 96.03 per dollar at 5 p.m. New York time, after rising as much as 3.2 percent, the most on a closing basis since May 2010. It gained 2.4 percent to 127.84 per euro. Europe’s shared currency added 0.4 percent to $1.3313, touching the strongest level on a closing basis since Feb. 19.

Stocks, Swings

One-year implied volatility for the dollar-yen climbed to 12.8 percent, its highest level since September 2011. The Topix index of Japanese stocks decreased 1 percent, while the Standard & Poor’s 500 Index of stocks declined 1 percent.

Treasuries rallied, with the 10-year note yield falling two basis points, or 0.02 percentage point, to 2.19 percent even after the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.95, the lowest since December 2010.

“The three-year note auction, I guess it was pretty weak,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC, by phone from New York.

Japan’s Nikkei newspaper reported the Japanese FSA plans to adopt a “bail-in” program to prevent taxpayer-funded rescues of failing banks.

“Maybe it took just a little spark to set off the move and it was the lack of liquidity,” said Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit by phone from Stamford, Connecticut. “Dollar longs are quite large and this position clear-out still has a long way to go.” A long position is a bet that an asset will increase in value.

Aussie Falls

Australia’s dollar touched its weakest level since 2010 versus the greenback as the nation’s statistics bureau said April home-loan approvals rose 0.8 percent, versus the 2 percent advance estimated by economists and a revised 4.8 percent gain in March.

The currency decreased 0.4 percent to 94.27 U.S. cents after reaching the lowest on a closing basis since Sept. 10, 2010.

“Housing is the one area most likely to make up for the mining investment downturn, and it’s disappointed,” said Joseph Capurso, a Sydney-based foreign-exchange strategist at Commonwealth Bank of Australia. “You’ve got to say that the Aussie’s going to keep on falling.”

The Philippine peso fell for a fifth day against the dollar after official figures showed overseas shipments from the Philippines slipped 12.8 percent in April. That compares with a 5.3 percent estimate in a Bloomberg survey of economists. The jobless rate climbed to the highest in three years.

Ringgit Down

Malaysia’s ringgit weakened on speculation the Federal Reserve will cut its monetary stimulus, slowing inflows into emerging-market assets.

The peso fell 0.5 percent to 43.085 per dollar. Malaysia’s currency depreciated 0.7 percent to 3.15 per dollar, according to data compiled by Bloomberg. It touched 3.1615, the weakest level since July 27.

JPMorgan Chase & Co.’s G-7 Volatility Index, based on currency option premiums, reached 10.57 percent. It touched 10.62 percent on June 7, the highest level since June 2012. Yields Italy’s 10-year government securities rose eight basis points to 4.37 percent, while Spanish 10-year yields added six basis points to 4.66 percent.

The BOJ kept unchanged its plan for a 60 trillion-yen to 70 trillion-yen annual increase in monetary base, the central bank said after a two-day meeting ended today. All but three of 23 analysts in a Bloomberg News survey either forecast that the BOJ would approve two-year or longer loan operations at the policy meeting or said such a move was possible.

Kuroda said after the meeting that the central bank would discuss longer fund operations when needed.

BOJ Projections

“Most investors didn’t expect any action, but a handful of players thought officials might have done something to put a lid on rising bond yields,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview from Washington. “Since that didn’t materialize, we’ve seen a sharp selloff in the Nikkei. They didn’t do much to instill optimism that Japan is leaning towards more action to settle markets.”

The yield on Japan’s benchmark 10-year bond climbed five basis points to 0.89 percent. It has swung from an all-time low of 0.315 percent to as much as 1 percent since the BOJ announced in April a plan to double monthly bond purchases to more than 7 trillion yen.

The yen has climbed 6.2 percent in the past month, the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar was down 0.3 percent and the euro has risen 2.5 percent.

Before it's here, it's on the Bloomberg Terminal.